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Privatisation 999


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Privatisation 999

  2. 2. DEFINITION  Privatisation means transfer of ownership and /management of an enterprise from the public sector to private sector.  It also means the withdrawal of the state from an industry or sector, partially or fully.  Another dimension of privatisation is opening up of an industry that has been reserved for the public sector to private sector.
  3. 3. CONDITIONS FOR PRIVATISATION  Liberalization and deregulation of an economy is prerequisite if the privatisation to take place.  Capital markets should be sufficiently developed to be able to absorb the disinvested public sector shares.
  4. 4. OBSTACLES TO PRIVATISATION  Government want to sell least profitable enterprises those the private sector is not willing to buy at prices acceptable to government.  Disinvestment tends to arouse opposition from employees , politicians and bureaucrats.  Relatively underdeveloped capital market makes it difficulty for government to float shares.
  5. 5. CONDITIONS NECESSARY FOR THE SUCCESS OF PRIVATISATION  Commitment of political leadership.  There must be a multiplicity of private suppliers for the benefit of competition to follow.  Freedom of entry to provide goods and services.  Public services to be provided by the private sector must be specific or should have a measurable outcome.  Consumers should be able to link the benefit they received from a service to the cost they pay for.  Privately provided services should be less susceptible to fraud than government services.  Equity is an important consideration in the delivery of public services.
  6. 6. ARGUMENTS IN FAVOUR OF PRIVATISATION  Increases efficiency.  Helps government to mop up funds.  Specialisation.  Helps government to concentrate on essential state functions.  Capital.  Better management of enterprise.  Encourage entrepreneurship.  Accountability.  Better performance.
  7. 7. ARGUMENTS AGAINST PRIVATISATION  Discards noble objectives.  Concentration of economic power.  Performance.  Driven by profit motive.  Forgoing future streams of income for government.  No guarantee of performance.  Vested interest behind privatisation.  Against national interest.  Cannot be carried out effectively in developing countries.
  8. 8. STAGES OF PRIVATISATION As per Prof. S.K.Goyal privatisation in India has been carried out in following stages: 1. Deregulation. 2. Dereservation. 3. Disinvestment 4. Privatisation.
  9. 9. 1.DEREGULATION Deregulation means removal of government rules and regulations that constrain the operation of market forces. In India deregulation would imply loosening of statutes like the IDRA 1951,MRTP act 1969,FERA 1973.
  10. 10. 2.DERESERVATION Deregulation implies opening up of sectors reserved for only public sector to private sector. Now only two areas(defence production and railways ) are under public sector.
  11. 11. 3. DISINVESTMENT Diposal of public sector units equity in the market or in other words selling of a public investment to private entreprenuer. Methods of disinvestment are Issuance of Global Depository Reciepts.  Cross-Holding:Selling part of government’s shares in one PSU to another PSU.  Warehousing: Government financial institutions buying stake in selected PSU and holding them until a third pay emerged.  Retaining golden share: Retaining stake upto 26% in PSU.  Strategic sale method: selling major portion of share to a private party and also giving management control.
  12. 12. Examples:  Bharat Aluminum Company Limited(BALCO)  Modern Food Industries Limited  Videsh Sanchar Nigam Limited(VSNL)  Hindustan Zinc Limited  Marathi Udyog Limited(MUL)  Lagan Jute Machinery Limited  Hotel Corporation Of India Limited (HCI)  Paradeep Phosphates Limited(PPL)  Grand Ashok, Delhi and Bangalore units of ITDC Limited
  13. 13. PRIVATISATION Selling majority of stake of public company to private parties. Ways of privatisation  Divestiture  Denationalization  Contracting  Franchising  Liquidation
  14. 14. SINS AND PITFALLS OF PRIVATISATION  Lack of proper strategy.  Ambiguity of objectives.  Connivance.  Wrong timing.  Lack of political consensus.  Wrong labour strategies.  Lack of political will.  Poor financial strategies.  Wrong environment.  Prevalence of monopoly elements.  Problem of cultural change.
  15. 15. THANK YOU

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